University Business - December 2012 - (Page 72)

CAmpus FINANCE By ann C. logue EnDowmEnts: nEw what stakeholders really want to know QuEstions in thE “nEw normal” t he financial crisis is in the past, more or less, and campuses are looking ahead to a new era for their endowments. But what does this mean? Four years on, we’ve come to grips with the changes wrought by the September 2008 market crash. Finance departments are revising their theories and boards of trustees are revising their expectations under what has been called the “new normal”—a time of low stock market returns, low interest rates, and low growth in personal income. The heart of the university may be the students and alumni, and the soul may be the faculty, but the bones are the funds that support them. It takes money to operate a university now and in the years to come. Permanent endowment capital helps keep the campus experience consistent through generations, supports growth, and serves as a source of funds should the institution become stressed. These permanent funds have growing importance in the here-and-now. Cuts in state aid and difficulty in raising tuition mean that more institutions need to raise endowment funds. The size of the endowment is a function of investment performance, spending, fundraising, and inflation, explains Ann Bennett Spence, managing director of Cambridge Associates in Boston. All these factors are influenced by choices on campus, except inflation. For the fiscal year ending June 2011, the mean annual rate of return on American college endowments was 19.2 percent, according to the NACUBO-Commonfund Study of Endowments. How should that money be raised? How should it be invested? And how should it be spent? Questions that were easy to answer in good times are a little tougher to address now. For the university staff and trustees, the endowment is a source of income to support current projects, and the endowment’s growth will help the entire institution grow. From year to year, though, the relationships between investing, spending, and fundraising will change. “Every university and college has its own endowment with its own role,” says Spence. But one thing is certain: All higher ed institutions have a lot 72 | December 2012

Table of Contents for the Digital Edition of University Business - December 2012

University Business - December 2012
Editor’s Note
College Index
Ad Index
Behind the News
Money Matters
Independent Outlook
5 Reasons Flipped Classrooms Work
Test Driving Mobile
Open Source Myth Busters
Models of Efficiency
1st Annual Readers’ Choice Awards
Education Innovators
Endowments: New Questions
End Note

University Business - December 2012